Last updated: 12:49 / Friday, 4 April 2014
Potential conflicts of interes

Michael Zeuner Warns Investors About Their Advisors’ Sales Agendas

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Michael Zeuner Warns Investors About Their Advisors’ Sales Agendas
  • Wall Street Journal article explains clients seeking unbiased investment advice are often unaware of advisors’ incentives to sell them products and services
  • "Lack of transparency and conflicts of interest are widespread issues in the financial industry as a whole"
  • Zeuner identifies three different types of advisors: manufacturers, distributors and independent, fee-only fiduciary

Michael Zeuner, managing partner of WE Family Offices, a family office advisory firm that caters to ultra high net worth (UHNW) clients, was featured in the Wall Street Journal discussing one of the least understood problems in the financial service industry. Clients seeking advice from their advisors are often unaware of potential conflicts of interest stemming from their advisor’s compensation model, which incentivizes the advisor to sell them certain products and services.

“This problem doesn’t just apply to UHNW families - lack of transparency and conflicts of interest are widespread issues in the financial industry as a whole. When clients seeking advice are instead sold products or services, it can be difficult to tell the difference. They trust their advisors but typically are unaware of how their advisor is compensated,” said Michael Zeuner.

Zeuner identifies three different types of advisors:

  • Manufacturers: These firms create financial products such as mutual funds, or private equity or hedge fund interests. They are typically compensated by a percentage of assets under management (AUM) from investors who buy their product.
  • Distributors: Brokers, dealers, or other advisors who sell their customers and clients investment products and services created by Manufacturers. Distributors often are affiliated with, or have agreements in place with Manufacturers, and may receive both commissions to sell their products and management fees from clients.
  • Independent, Fee-Only Fiduciary: These advisors are independent, registered with the SEC and have a legal obligation to put their clients’ interests ahead of their own. They do not receive sales-based compensation and are not affiliated with manufacturers or distributors. This business model allows them to provide unconflicted advice focused on helping a client make smart buys, instead of trying to sell the client something.

How can clients tell what kind of advisor they are dealing with? It can be as simple as asking their advisor these two questions:

1- Are you affiliated with any company that sells financial products or services?

2- Do you receive any compensation based on the products and services you are recommending to me?

To help investors and families understand the difference between advisors, Zeuner also authored an article titled “Cut Through The Clutter” that provides investors with information to help them understand the role or roles their advisor plays and figure out if they are getting unbiased advice to help them buy smart, or being sold products and services that the advisor or its affiliates have a stake in.

 

For your information...

With offices in New York and Miami, WE Family Offices is a different kind of family office catering to ultra-high net worth clients. WE believes families should stay in control of their wealth, constantly learning and always engaged so that they are able to make the critical decisions necessary to manage, preserve and grow their wealth. WE is not affiliated with any financial services company and is compensated only with client fees. As a result, WE’s advisors are free to offer their clients independent advice and serve as their advocate, focused only on their best interests. WE Family Offices was most recently ranked by Investment News as the number one RIA in Florida, by assets under advisement.

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